Supply & Demand

The last time I checked, resources were still finite, and human desire is still insatiable. Since that is the case, for what reason do we believe that the market will be unable to reallocate the liquidated assets of the Big 3 U.S. automakers?

The Big 3 is going bankrupt, but people still want to buy cars, and we still have the resources to build cars. The problem we have today is that the Big 3 are spending too much money to build cars that people either don't want or aren't willing to pay for given the alternatives. This is not an "end of the world" kind of problem like if we just sucked the last drop of oil out of the earth. This is about allocating our vast resources to properly satisfy our seemingly infinite demand for stuff. The real danger here is not what will happen if the Big 3 goes under, the real danger is the fact that the Big 3 is wasting our precious finite resources, and bailing them out will only prolong the waste.

As long as people still want things that they don't have there will always be something productive for people to do. If the Big 3 are wasting our time, talents, and resources building cars that don't serve the wants of the people, then it is appropriate that they be liquidated so that the labor, talents, skills, and resources can be put to use making things that people want more.

The only thing that stands in the way is government bailouts and unemployment benefits. The market will always reallocate resources to put them to productive use, but the market is hamstrung when the government prints money to pay people to stay home. This printed money is worthless, but since we all use it, every dollar they print to keep the Big 3 in business or pay for workers to stay home steals wealth from every other dollar in the economy. So our savings is worth less and less in terms of real goods that can be purchased with it and all we get in return are crappy cars that nobody wants.

Failure puts downward pressure on prices (making our savings worth more and more), which makes purchasing the liquidated assets in order to put them to more productive use cheaper and cheaper. Propping up failing enterprises makes recovery more expensive and it eats away at our savings, therefore making recovery twice as difficult. Allowing these enterprises to go under makes the recovery process cheaper and it strengthens existing savings, therefore making recovery twice as easy.